Small Cap Round-Up: End of The Beginning

Sureserve Group (LON:SUR) – Setting a New Target Price of 106p Before The Finals

On Tuesday 24 January this £145m capitalised compliance and energy support services group will be reporting its final results for the year to end September 2022.

The group is expected to declare over £300m (£244m) of revenues, while adjusted pre-tax profits could show a good advance to £16.4m (£13.6m) increasing its earnings to 8.1p (7.1p) per share.

Solid operational performance will have been shown for the year, despite its inflationary pressures.

The period end showed up a 16% increase in the group’s order book to £565m (£503m), while its net cash position was very strong at over £23m (£16.6m) with its £15m revolving credit facility undrawn.

Analyst Alastair Stewart at Shore Capital estimates that the current year to end September could see revenues improve again to £319.2m, helping to lift profits to £18.6m, worth 9.2p in earnings.

That very positive order book shows an excellent visibility of future earnings, as long as the group’s management can keep firm control of its costings – and I have no reason to doubt their ability to do so.

The group’s shares have been edging higher from the 66p level at which they were trading a month ago.

Now at 85p they appear to me to be significantly under-rated considering its financial strength, its order book, growing revenues and continually improving profitability.

If one used a market average pe ratio, then its shares would be trading at around 115p.

In my view I see these shares rising to well over the 100p barrier in early 2023, before heading even higher.

Accordingly, I now set a new Target Price of 106p.

(Profile 14.01.20 @ 36p set a Target Price of 50p*)

Marlowe Group (LON:MRL) – A Useful Price Hike is Due

Valued at £461m, this UK leader in the compliance services and software sector will be holding a Capital Markets Day event next Wednesday (11 January) at its offices in Grosvenor Place, near Victoria Station.

It is part of a much-needed information push by the group, whose shares were twice the current price a year ago.

After hitting 415p a month ago, the shares have since edged higher to close last night, some 24p better on the day, at 484p.

Analyst Peter Renton at Cenkos Securities has estimates out for the current year to end March to report revenues of £470.0m (£315.9m) and adjusted pre-tax profits of £54.0m (£38.1m), taking earnings up to 45.0p (37.1p) per share.

For the coming year he goes for £500m of sales, £63m profits and 48.6p earnings.

After the group’s interim results were announced in late November he had a Buy rating on the shares, that was when they were trading at 720p in the market.

The market has since been bugged by comments that the recent money rates rise will put the group’s acquisition strategy at something of a disadvantage.

That may well be the reason for the fallback in price, but I retain my faith in the group’s expansive management and suggest that the shares are undervalued at these levels.

They are capable of an early 2023 useful price hike.

(Profile 30.01.20 @ 468p set a Target Price of 550p*)

Hotel Chocolat Group (LON:HOTC) – A Very Quick and Profitable Nibble

On Friday 23 December I suggested that, after noting the comments of analyst Wayne Brown at Liberum Capital, I actually fancied the shares of this manufacturer and retailer of chocolates and cocoa-related products.

Ahead of the mid-January Trading Update the shares, then 155p, took my attention again after such a year of mishaps.

Earlier this week it announced of a new deal with the Tokyo-based Eat Creator Corporation, whereby the latter will manage the local chocolate-making facilities, together with the operation of 21 Hotel Chocolat branded stores, giving 20% of the business together with royalties to HOTC.

The group’s shares have responded well, touching 190p yesterday after nearly 400,000 shares were traded.

That is a very tasty 22% gain in just a few days, with possibly more good news soon helping to take them even higher.

(Profile 21.03.19 @ 340p set a Target Price of 402p*)

MJ Gleeson (LON:GLE) – Lower Figures Expected Next Week

The first half Trading Update coming from this £209m low-cost housing development group is likely to make disappointing reading.

The current environment of higher mortgage costs and lower property values does not set good back tones.

It has been widely reported that the number of first-time buyers has fallen by 9%.

The announcement, which is due on Thursday of next week (13 January), could well lower guidance on the number of completions expected for the current year to end June.

The last report that I saw was from analyst Charlie Campbell at Liberum Capital, who was then rating the group’s shares as a Buy looking for 560p as his price objective.

His estimates for this year are for £334m (£373m) sales and significantly lower pre-tax profits of £32.0m (£55.5m), with earnings falling to 43.5p (78.1p), whilst maintaining its 18p dividend per share.

The group’s shares put on 11.5p yesterday to close at 361.5p, just a year ago they were trading at 808p – a sign of the times?

My price objective is way, way, way off now – apologies.

(Profile 11.04.22 @ 613p set a Target Price of 750p)

(Asterisks * denote that Target Prices have been achieved since Profile publication)